Friday, February 19, 2010

Analysis: Global Debt Bombing

Paul B. Farrell of MarketWatch recently published an eye-opening, jaw-dropping list of the twenty "global time bombs" set to go off in the world.

Without a doubt, it is quite a list, and you would rightfully feel disturbed as the final illusions you might be entertaining about a rosy future ran away in complete panic and took your retirement prospects along with them, shouting out a Great Big HA, HA! Hey, and, if you still think that we did not have an answer to the question as to whether or not we had entered the antechamber of a Great Depression, something which Pim of Spain pointed out here months ago as needing a structural change to overcome, then, after pondering this list, you will say that we have an answer, and it is "yes".

As we add debt, we reach a triggering point where we can no longer pay the interest on the debt and the whole system goes tilt. This might be dealt with by what is called "sovereign bankruptcy". No matter how it is dealt with, our currency will be devalued. You will not be getting Social Security checks, and you can forget about Medicare and Medicaid. You will be lucky to have a full stomach.

Gerald Celente has also been quite prescient in this regard. Take a look at the videos included.

the trigger mechanism [discussed] in This Time Is Different: Eight Centuries of Financial Folly, by economists Carmen Reinhart and Kenneth Rogoff: The "90% ratio of government debt to GDP is a tipping point in economic growth." For 800 years "you increase it over and beyond a high threshold, and boom!" Well guess what? "The U.S. government-debt-to-GDP ratio is 84%." Soon, Ka-Booom! Depression. Kiss your retirement goodbye.

2. U.S. Foreign Trade Bomb. Monthly deficits actually dropped from $50 billion per month to roughly $35 billion. But the total continues climbing as $400 billion is added each year. Foreigners now own $2.5 trillion of America, with China holding over $1.3 trillion in Treasury debt.

3. Weakening U.S. Dollar as Foreign Reserve Currency Bomb. Fear China and other currencies will replace dollar as main foreign reserves. The dollar's fallen: The main index measuring dollar strength has gone from 120 at the Clinton-to-Bush handoff to below 80 today.

6. Peak Oil and the Population Bomb. China and India each need 500 new cities. The United Nations estimates world population exploding 50% from 6 billion to 9 billion by 2050: Three billion more humans demanding more automobiles, exhausting more resources to feed their version of the gas-guzzling "America Dream."

7. Social Security Bomb. We have no choice; eventually we must either cut benefits or raise taxes. Politicians hate both, so they'll do nothing. Delays worsen solutions. Without action, by 2035 Social Security and Medicare benefits will eat up the entire federal budget other than defense.

8. Medicare: A Nuclear Bomb. Going broke faster than Social Security. Prescription drug benefit added an unfunded $8.1 trillion. In 5 years estimates rose from about $35 trillion to over $60 trillion now.

10. State and Local Government Budget Bombs. Deficits of $110 billion in 2010, $178 billion in 2011on top of more that $450 billion in underfunded state and municipal employee pension funds.

11. Underfunded Corporate Pensions Bomb. From $60 billion surplus in 2007 to $409 billion deficit in 2009. And a whopping 92% of the pension plans of companies are now underfunded. Defaults are guaranteed by taxpayers.

12. Consumer Debt Bomb. Americans are still living beyond their means. Even with a downturn, consumer debt rose from about $2.3 to $2.5 trillion.

13. Personal Savings Bomb. Before the 2008 meltdown savings rate dropped from about 10% in the early 1980s to below zero. [This one we have changed recently, and savings are up.]

17. Insatiable Washington Lobbyists Bombs. Paulson, Goldman, Geithner, Morgan and Wall Street banks, through their lobbyists and former employees working inside now have absolute power over government spending